Remember the much decried end-of-Clinton- era pardons, the most controversial of which involved tax cheat and storied trader Marc Rich? Well, if I am reading the tea leaves right, those shenanigans pales compared to the nonsense Bush is trying to pull in his last week in office.
Bush is making it sound as if it is imperative that the remaining TARP funds be released, which is justifiable only if there is some disaster in the making that needs to be averted between now and noon on January 20. The only candidate that might fit that description is Citi, and investors obligingly ran the stock down 20% today (it recovered a tad before the close) and took the broader indexes with it.
I am mighty puzzled that the markets are taking badly to the spectacle of Citi hiving off a bit or two of its unwieldy self. We have said repeatedly that propping up the financial services industry in place will impede any economic recovery. It is simply throwing good money after bad. The industry needs price discovery, rationalization, and recapitalization. A Citi tidying-up, or something bigger, is a very good step for the economy as a whole. It admittedly may not be pretty for financial stock buyers who got in too early. However, it is a mistake to think that what is in the best interest of these firms (as defined by incumbent senior management who are wedded to hanging on to turf) is in the best interest of the economy or the stock market ex financial firms (particularly since CEO pay in financial services is directly correlated with bank assets).
I am as bearish as just about anyone, but there is a huge amount of cash sitting on the sidelines right now, and the normal course of events would be a wee bit of a rally somewhere along the line before things go lower (if you are of the “going lower” persuasion, that is).
So why would Bush want to grab the rest of the TARP money now? The only plausible explanation is to block the Obama crowd from imposing tougher standards like – hold your breath – accountability! And he could force a confrontation, which most believe would send stocks even lower. What a nice present for an incoming president.
But Obama is acceding to Bush’s brinksmanship, which is truly disappointing, Unless he is shrewdly trying to engage the Bushies while running the clock out. But it certainly doesn’t look that way.
From the Financial Times:
George W. Bush on Monday agreed to ask Congress to release the remaining $350bn of US bail-out funds, meeting a request from Barack Obama as the president-elect’s team tried to quell opposition to the move among legislators.
Congressional aides said at least one and possibly both chambers of Congress could vote against releasing the funds. The president could veto any disapproval legislation, ensuring the $350bn is disbursed, but such a spectacle would test market nerves and undermine hopes of a strong start under Mr Obama….
Analysts blamed the falls on fears of bad fourth-quarter earnings, a possible forced restructuring at Citi, and the prospect that the Obama administration – under pressure from Congress – would impose harsh conditions on banks receiving further government capital.
Mr Obama told reporters: “It is clear that the financial system, although improved from where it was in September, is still fragile and I felt it would be irresponsible for me – with the first $350bn already spent – to enter into administration without any potential ammunition.”….
In a bid to ward off a vote of disapproval, Lawrence Summers, incoming National Economic Council director, on Monday sent a letter to congressional leaders promising greater transparency and more restrictions on banks receiving bail-out funds – including constraints on dividend payouts and on takeover activity.
Note the formula that appears in the Times: “At Obama’s Urging, Bush to Seek Rest of Bailout Funds.” I have some colleagues who have ringside seats, and this was staged. We have the appearance of bi-partisanship, but Obama is bending over backwards to prevent a slugfest. Or so I have been told. Key section:
The decision to request the money now reflects the calculation by Mr. Obama and his aides that it would be better to have both the incoming and outgoing presidents urging lawmakers to release the money, given the high level of anger and frustration on Capitol Hill over how the Bush administration has managed the bailout program.